Freudenberg On Track To Become Innovative, Diversified Tech Group

By T Murrali :

The German family-owned Freudenberg with a range of products including house wares and cleaning products, automotive parts, textiles, building materials, and telecommunications, is on track to become an innovative broadly diversified global technology group.
Freudenberg achieved sales growth of 13.5 percent to €8.6 billion in calendar 2016, based on the pro-rata consolidation of joint ventures, in spite of challenging conditions in multiple market segments and world regions.
Adjusted for the effects of acquisitions – especially of Japan Vilene Company in April 2016 and the Vibracoustic Group in July 2016 – amounting to €967.3 million and exchange rate effects (€-216.8 million), sales grew 3.7 percent to €282.6 million compared with the previous year. Consolidated profit ran at €1,095.1 million (previous year: €522.0 million) including the special effect of acquisitions.
“We are on track to become one of the most innovative broadly diversified global technology groups,” Dr Mohsen Sohi, CEO of the Freudenberg Group, told the annual press conference held in Weinheim last month. “We continue to grow profitably and sustainably and the implementation of our strategic projects is proceeding fully in line with our plans. This success is the result of the hard work and excellent performance of our more than 48,000 employees worldwide,” he said.
On the basis of the equity consolidation of the joint ventures, the 168-year old group invested €1,629 million in 2016 including €1,222 million (previous year €138 million) in acquisitions and €407 million (previous year: €303 million) in production plants, tangible assets, buildings and intangible assets (additions to the statement of financial position). Of this amount, Freudenberg invested €148 million in Germany (previous year: €105 million) including €114 million (previous year: €75 million) in Weinheim.

Innovation

The business groups’ innovative activities benefit from materials competence, which is being constantly expanded, among other things via technology platforms. The Freudenberg Group focused on the main overarching technologies of relevance to several Business Groups.
With ‘innovation’ being the most important pillar of corporate success, Freudenberg invested a record amount worth €371.9 million (previous year €315.3 million) during 2016, based on the pro-rata consolidation of the joint ventures. This corresponds to a research and development ratio of 4.3 percent against 4.2 percent during the previous year. The objective of all activities is to increase the sales of new products. The share of products less than four years old reached 30.4 percent on the basis of pro-rata consolidation of the joint ventures against 26 percent last year.
During 2016 the group addressed technology platforms such as the nonwovens, sealing technology, moulding, friction/wear & lubrication, surface technologies, polymers, and reactions and mixtures.

Investments

Freudenberg has invested substantially towards acquisitions (see box). In addition, the group has invested in machinery, plant and buildings. For example, Freudenberg Sealing Technologies expanded production capacity in Oberwihl, Germany; Bursa, Turkey; and Kecskemét, Hungary. Freudenberg Chemical Specialities commenced construction of a European logistics centre for Klüber Lubrication, Chem-Trend and OKS in Maisach, Germany. Japan Vilene Company began construction work on a new production plant in Aguascalientes, Mexico. In Weinheim, a large administration building in the Industrial Park was handed over ready for occupation by the tenants at the end of the year under review.

Current Developments

The Freudenberg Group started the 2017 financial year with an improved order book in line with the market environment. However, the macroeconomic situation remains challenging – especially in South America and Russia. Equally challenging are developments in the oil and gas business. At the same time, new technological developments call for new solutions – from e-mobility and the demands of autonomous driving in the automotive sector to viable concepts for renewable energies and the implementation of Industry 4.0.
In total, Freudenberg plans to initiate investment projects with a total value of €320 million in 2017, based on the pro-rata consolidation of joint ventures. Of this amount, about €90 million will be invested in tangible assets in Germany including €30 million in Weinheim.
Focus India
In India too, Freudenberg continued its growth momentum. “With our plan to invest in a new production facility in the city of Chennai we underline our long-term commitment to the local market and support the ‘Make in India’ initiative,” said Sohi, at the press conference held in Bengaluru, the group’s India headquarters. In the
first phase the plant that will come up in VallamVadagal industrial area, will make sealing products.
The group will start the construction of a new production facility here shortly investing 15 million Euro or Rs 111 crore. The land acquired is more than 56,000 m² – for further site development. As a global market leader for automotive seals, Freudenberg wants to serve its customers in the strong automotive hub of Chennai from this plant. It is very close to Oragadam in Chennai, the home for several OEMs including Daimler India CV, Renault Nissan, Ashok Leyland, India Yamaha and Royal Enfield.
In India, Freudenberg’s seven business groups generated sales of Rs 1,483 crore, an improvement of 20 percent compared to the previous year. Employee numbers rose 17 percent to 2,475 at around 50 locations in India – with six R&D centres and 14 production sites with state-of-the-art shop floors. This increase in sales and employees can be attributed to a large extent to the acquisition of Vibracoustic.
“In 2016, Freudenberg invested €8.6 million or Rs. 62 crore in India,” Georg Graf, Freudenberg Regional Representative India, said. “Investments were made across the board, at all Freudenberg Business Groups, in manufacturing and research facilities and equipment.” Over the past five years Freudenberg has invested a total of Rs 363 crore. And Freudenberg continues to invest in India.
Changing Landscape
Freudenberg Group has been gearing up to cater to the emerging mobility segments. With up to 300 different Freudenberg components found in any given car model, it is not surprising that the German technology group is already actively working with its customers to address the challenges from this mobility shift. Components are found in batteries, engines, charging units and many other elements. Innovative solutions from the company help make cars safer thanks to state-of-the-art battery components. Filters ensure clean cabin air. A broad-ranging sealing technology portfolio increases useful lifetime and improves thermal management. Cars make less noise thanks to advanced anti-vibration technology and specialty lubricants make them more efficient.
In 2016, Freudenberg generated some 40 percent of its global sales from its activities in the automotive industry – in India about 50 percent. The products manufactured by the group companies are being used in hybrid and electric vehicles. Battery components, including ‘Safety Separator’ help make cars safer with extended service life. A wafer-thin yet extremely durable non-woven separator, equipped with a functional ceramic material impregnation, keeps the plus and minus poles permanently separated. This minimizes the risk of short circuits or even battery fires while allowing the ions and the current to flow freely.
With its wide product portfolio the group is positioning itself to be the right partner to drive e-mobility in India forward. At present only one percent of 200 million vehicles on Indian roads are e-vehicles, however, the country is looking at embracing a notable portion of vehicles to be battery powered by 2030. Key will be the provision of subsidies driven by a battery leasing strategy. Freudenberg is gearing up to enter into a close dialogue with its Indian customers, contributing leading-edge expertise built on a long history of supplying battery components.
Outlook
On the basis of its current assessment, despite all the challenges faced, the Freudenberg Group expects global organic growth in sales of between one and three percent and profit from operations slightly above the previous year’s figure. Almost all business groups are likely to contribute to this performance. On the basis of this forecast, the group expects stable development in its return on sales and a profitable double-digit growth in India for 2017.

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